Wednesday, March 28, 2012

Making a mockery of themselves

John Mann, MP for Bassetlaw, in the Treasury Committee yesterday

Georgie Porgie's puddings and pies are certainly making a few ripples. With what the media have variously labelled a "pie tax" (Daily Mail) and a "pastry tax" (Independent and Sun), he doesn't even have to kiss the girls to make them cry. He just charges them 20 percent VAT.

But, as with the postal charges, the MSM simply doesn't get the EU dimension, failing to detect that the anomalies on hot food charging had to be dealt with, because of an ECJ judgement that could cost him billions if not addressed.

At the heart of this tax grab is the VAT Sixth Directive, and - on the face of it - the crucial issue is the requirement that: "The standard rate of [VAT] shall be fixed by each Member State as a percentage of the taxable amount and shall be the same for the supply of goods and for the supply of services …".

The member states, says the Directive, may also apply either one or two reduced rates, at not less than five percent (or zero in the case of the UK), to some specific categories of goods and services, which may include foodstuffs and latterly restaurant services.

Enter Manfred Bog who, back in 1994 was running three mobile snack bars. After a series of disputes with the German tax authorities, Bog in 2006 fixed upon one particular issue, that 70 percent of his sales were being assessed for standard rate of VAT, while the remainder only attracted the lower rate of five percent.

The German authorities here were arguing that the larger proportion of the food sold was consumed "on the premises" (i.e., under a shelter provided by Bog) and, therefore, the trade was a "service" rather than the supply of goods – thus attracting the higher rate of VAT.

We should not detain ourselves with the finding of the German financial court, the Bundesfinanzhof. Down that path lies madness. Suffice to say that the case was joined by others, including a firm called CinemaxX, arguing the toss about popcorn sales. Again, the service/supply of goods argument was in the cooking pot. And then there was Mr Lohmeyer, with his snack stalls and a swinging grill, plus – of course - Fleischerei Nier. Don't even go there.

Cutting to the chase on this bundle of cases, the judgement on 10 March last year ruled that the supply of food or meals freshly prepared for immediate consumption from snack stalls or mobile snack bars or in cinema foyers is a supply of goods rather than service – as long as the supply of services preceding and accompanying the supply of the food were not predominant.

Ostensibly, this did not apply to the UK – or so HMRC said at the time. Yet the Fish Fryers Federation and others disagreed, because the essence of the ECJ judgement was that they were supplying goods (as in foodstuffs), not services. And as the UK zero rates food, they were thus salivating at the prospect of a mega-refund.

"Ahah!", said HMRC batting away such insolence. The fish fryers are caught either way. Their tax category - devised uniquely by the UK - includes "hot take-away food" and well as catering services. It matters not whether it is food or service, VAT still applies, regardless of Bog.

And there gripped the cold, mindless jaws of the VAT Sixth Directive, of which the ECJ had so cruelly reminded us. To their horror, HMRC have confronted their worst nightmare. If the fish fryers are selling hot food rather than services, and have to charge VAT on it, so does everybody else who sells hot food.

That is what the Sixth Directive says: you can't charge different rates of VAT on the same goods. If a member state charges VAT on some hot take-away foods, it must charge the same rate of VAT on all hot take-away foods. They must, therefore, all be charged at zero rate or the standard (higher) rate. And, of course, Georgie opted for the higher rate, taking in the (hot) puddings and pies.

The rest, as they say, is history, except that the media is still blissfully unaware of the background – as indeed are the MPs who were questioning little Georgie Porgie at the Treasury Committee yesterday.

Instead of picking up the EU link - and the fact that Georgie had no option under EU but to go for all or nothing - they sought to ridicule the tax on the basis that enforcement would be impossible. In the form of Labour's John Mann (pictured), they joshed Georgie for not having been to a pie shop recently, (even if he has kissed plenty of girls). Then, smirked Mann, a pie at 20°C, when the ambient is 22°C as it was then, would be VAT-free. But if the ambient dropped to 19°C, the same pie would cost 20 percent more.

Then it was Georgie's turn. Wiping the sneer from his face, he put the MPs in their place. "The way we operate with companies and large retail chains", says Georgie, "is that we don't do a check on every product sold". Instead, he says, "We come to an agreement with a company, a sensible arrangement between the Inland Revenue and the company, about what proportion of their products are sold hot".

If the MPs had any grasp of the real world, they would have known this – but they don't. And nor do they know anything about the dead hand of the EU in all this. So they mock Georgie - but in so doing, they make a mockery of themselves, and the institution of parliament.

This is not Georgie's law. It is alien law, interpreted by alien judges – and our trivial, tittering representatives don't even notice. And we haven't even started on the media – trivia is what they do. As for the people? They launch a Facebook campaign urging the Government to rethink the plans.